Dublin Waterworld Ltd. v National Sports Campus Development Authority

Factual and Procedural Background

This appeal concerns a claim by Plaintiff against Defendant for damages arising from an alleged malicious abuse of civil process related to a VAT charge on a lease of a National Aquatic Centre. The lease was granted by Defendant's predecessor, Company A, to Plaintiff in 2003 for thirty years. Clause 4.30 of the lease required Plaintiff to pay VAT on the lease.

Defendant issued an invoice in May 2003 claiming VAT of €10,254,600 based on Regulation 19 of the VAT Regulations 1979 (as amended). Plaintiff disputed the VAT charge and refused payment. Company A's solicitors issued a formal demand in December 2003. Proceedings were initiated in 2005 by Company A seeking payment of the VAT and forfeiture of the lease for alleged breaches.

Plaintiff successfully moved to have the VAT dispute referred to arbitration pursuant to the lease clause. The arbitrator found in favor of Company A, holding VAT was chargeable. The High Court initially upheld enforcement of the arbitration award, but the Supreme Court reversed, finding a fundamental legal error in the arbitrator's interpretation of Regulation 19, specifically that the presence of a valuation report constituted "other evidence" preventing use of the formula method to calculate VAT liability.

Subsequently, Plaintiff commenced proceedings alleging Defendant's pursuit of VAT recovery constituted malicious abuse of process, asserting that Defendant knew it was not entitled to charge VAT and had no reasonable or probable cause to initiate the claim. The High Court dismissed Plaintiff's claim, a decision now appealed.

Legal Issues Presented

1. Whether the fact that Defendant initially succeeded in primary litigation and arbitration precludes a finding of malicious abuse of process despite ultimate failure on appeal.
2. Whether Defendant had reasonable and probable cause to commence proceedings to recover VAT on the lease based on the legal and factual circumstances known at the time.
3. The relevance and weight of professional advice, Revenue guidance, and evidence regarding the interpretation of Regulation 19 to the issue of reasonable and probable cause.
4. Whether Defendant acted maliciously or without reasonable cause in withholding the Valuation Office Report from Plaintiff and in the conduct of the VAT proceedings.
5. The proper approach to assessing reasonable and probable cause and malice in claims alleging malicious abuse of court process.

Arguments of the Parties

Appellant's Arguments

• The High Court erred in law by treating Defendant's initial success before the arbitrator and High Court as determinative of reasonable and probable cause, arguing that such success cannot retrospectively validate proceedings commenced without cause.
• Defendant knew from professional advice that the VAT claim was unlawful due to the existence of the Valuation Office Report, which constituted "other evidence" under Regulation 19, precluding use of the formula method.
• The High Court improperly relied on evidence and professional opinions unknown to Defendant at the time proceedings issued, including materials from the wider VAT community and Plaintiff's own tax advisors.
• Defendant was aware of a dichotomy between the wording of Regulation 19 and Revenue practice but proceeded with the claim nonetheless, demonstrating a lack of reasonable cause.
• Defendant deliberately withheld the Valuation Office Report from Plaintiff, evidencing knowledge that the VAT claim was invalid and undermining any claim of reasonable cause.
• The High Court failed to address critical evidence and submissions, including two key emails and the failure to call certain witnesses, which warranted adverse inferences against Defendant.
• The High Court's conclusion that Defendant had reasonable and probable cause was not supported by the evidence and was internally inconsistent, particularly regarding the dichotomy between law and practice.
• Even if Defendant subjectively believed it had cause, such belief was unreasonable as a matter of law.

Respondent's Arguments

• The High Court was correct to find that Defendant had reasonable and probable cause based on objective assessment of facts known at the time, supported by credible evidence including professional advice from PwC and Revenue guidance.
• Subjective belief is relevant only to malice, not to reasonable and probable cause, which is an objective test.
• Defendant's reliance on professional advice that VAT was chargeable was reasonable, and such advice was consistent with Revenue's interpretation and prevailing views in the VAT community at the time.
• The initial success before the arbitrator and High Court was strong objective evidence that Defendant had a reasonable chance of success and thus reasonable cause to commence proceedings.
• The alleged concealment of the Valuation Office Report does not establish that Defendant lacked reasonable cause; it may reflect tactical business decisions rather than knowledge of unlawfulness.
• The failure to call certain witnesses was not fatal; Defendant called sufficient witnesses to address the issues, and Plaintiff could have subpoenaed others if desired.
• The High Court judge's findings of fact, including on the nature of the advice received and Defendant's understanding, are supported by credible evidence and should not be disturbed on appeal.
• The existence of a dichotomy between Regulation 19's wording and Revenue practice does not inherently mean Defendant knew its claim was unlawful; the advice received acknowledged this but nonetheless supported the VAT claim.
• Defendant's conduct was not malicious or in bad faith, and the appeal should be dismissed.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court of Appeal carefully analysed the High Court's judgment and the extensive evidence concerning the tort of malicious abuse of court process. It affirmed that the test for reasonable and probable cause is objective, requiring assessment of the facts and legal principles known to Defendant at the time proceedings were issued. Subjective belief is relevant only to malice, a separate element.

The Court acknowledged the High Court judge erred in treating Defendant's initial success before the arbitrator and High Court as determinative of reasonable and probable cause, noting that such success cannot retrospectively validate an otherwise groundless claim. However, the Court found the High Court judge’s alternative basis—analyzing the evidence "in the round"—sound and well-supported.

The Court examined the professional advice Defendant received from PwC, Revenue guidance, and the views of the wider VAT community. It found credible evidence that Defendant was advised and believed that VAT was chargeable on the lease, despite awareness of a dichotomy between Regulation 19’s wording and Revenue practice. The Court accepted that this dichotomy did not equate to knowledge that the claim was unlawful.

The Court rejected Plaintiff’s argument that Defendant’s withholding of the Valuation Office Report demonstrated knowledge of unlawfulness, reasoning that such conduct, while perhaps tactical, did not prove lack of reasonable and probable cause. The Court noted that Defendant disclosed the report to Revenue and that the burden remained on Plaintiff to prove Defendant lacked cause, which was not met.

The Court also found no error in the High Court judge’s failure to explicitly address certain emails or draw adverse inferences from the non-calling of specific witnesses, given the volume and complexity of evidence and the presence of other credible testimony covering the relevant issues.

Regarding the alleged internal inconsistency in the High Court judgment about Defendant’s awareness of the dichotomy between law and practice, the Court held that the findings were not inconsistent. The judge was entitled to find that Defendant understood the advice as supporting the VAT claim notwithstanding the acknowledged legal uncertainty.

In sum, the Court concluded that the evidence overwhelmingly supported the view that a reasonable actor in Defendant’s position would have considered there was reasonable and probable cause to issue the VAT recovery proceedings. The High Court judge’s findings of fact, including on Defendant’s belief and reliance on professional advice, were supported by credible evidence and should not be disturbed.

Holding and Implications

The Court of Appeal DISMISSED the appeal.

The direct effect of this decision is to uphold the High Court’s dismissal of Plaintiff’s claim for malicious abuse of court process against Defendant regarding the VAT proceedings. The Court confirmed the objective nature of the reasonable and probable cause test and affirmed the importance of professional advice and Revenue guidance in assessing that issue.

No new legal precedent was established beyond the careful application of existing principles to the facts before the Court. The decision underscores the difficulty of proving malicious abuse of court process where a party has a stateable case supported by professional advice, even if ultimately unsuccessful on appeal.